Understanding New York’s Estate Tax Rules for 2025

Estate planning in New York is not just about deciding who inherits your home or savings, it’s about making sure your family is protected from unnecessary taxes, delays, and confusion.

Unlike many other states, New York imposes its own estate tax, separate from federal requirements. This means even families who wouldn’t owe federal estate tax might still face a significant bill at the state level.

For individuals and families living in New York City, Long Island, or Westchester, where property values often exceed the state tax threshold, careful planning is not optional, it’s essential.

What Makes New York Different

New York is one of the few states that still maintains a state-level estate tax. While the federal estate tax exemption is $13.99 million per person for 2025, New York’s exclusion amount remains significantly lower at about $7.49 million.

If your estate exceeds that amount, everything above the threshold may be taxed at a rate of up to 16%. But the real catch?
New York’s estate tax has what professionals call a “tax cliff.”

• If your estate value exceeds 105% of the exclusion amount, your entire estate, not just the excess, is subject to tax.
• In other words, being only a few hundred thousand dollars over the limit could result in paying tax on your entire estate.

That’s why strategic planning is so important for New York residents.

Who Needs to Pay Attention

You don’t need to be “rich” to face New York estate tax.

Families who own a brownstone in Brooklyn, a small business in Queens, or a vacation home in the Hudson Valley can easily reach the threshold.

Here are a few examples of who should review their estate plan now:

• Homeowners with property values that have appreciated significantly.
• Small business owners whose company value may exceed $2 million.
• Retirees with retirement accounts and life insurance policies pushing total assets beyond $7 million.
• Couples who assume that their combined assets are automatically protected (they’re not New York doesn’t allow “portability” of exemptions between spouses like the federal system does).

How the “Cliff” Works

Let’s say your taxable estate is $7.9 million. That’s only $410,000 above the 2025 threshold.

You might expect to pay estate tax only on that $410,000, but because of New York’s cliff, you could lose the entire exclusion and owe tax on the full $7.9 million.

This can mean hundreds of thousands in unexpected taxes.

Avoiding the cliff requires thoughtful estate planning, such as strategic gifting, charitable trusts, or other legal tools designed to reduce the taxable value of your estate before death.

Key Strategies to Minimize New York Estate Tax

Working with an estate attorney familiar with New York’s tax system can make a tremendous difference. Here are several proven strategies:

• Establish a Revocable Living Trust: A properly funded trust allows your estate to bypass probate and, in some cases, may help minimize taxes through flexible distribution planning.
• Consider Lifetime Gifting: New York does not currently impose its own gift tax, but gifts made within three years of death are added back into your taxable estate.
  Plan ahead, make gifts early, when possible, to reduce the taxable amount.
• Use Charitable Bequests: Leaving a portion of your estate to qualified charities not only supports causes you care about but can also lower your taxable estate.
• Create a Credit Shelter Trust (Bypass Trust): Since New York doesn’t allow spousal portability, a bypass trust can preserve the first spouse’s exemption for the surviving spouse, effectively doubling what a couple can protect.
• Update Asset Titling and Beneficiaries: Ensure your home, retirement accounts, and insurance policies are titled and designated correctly. A mismatch between documents and intentions can undo even the best plan.

Real Estate and Business Owners: Why You’re at Higher Risk

For many New Yorkers, real estate appreciation is the main reason their estates exceed the tax limit. A home bought in the 1990s for $350,000 might now be worth over $2 million.

Business owners face similar challenges. A closely held business or LLC may carry significant value, even if much of it isn’t liquid.

Without a clear succession plan, your heirs could be forced to sell property or dissolve a business to cover estate taxes.

To avoid this:

• Get regular professional valuations of your real estate or business.
• Discuss succession or ownership transfer options early.
• Explore trust structures that allow for smoother transition and control.

Federal vs. State Estate Taxes: How They Interact

The federal estate tax and New York’s estate tax are calculated separately, but they often overlap.

If your estate is large enough to trigger both, you’ll need coordinated planning to:

• Avoid paying tax twice on the same assets.
• Time transfers to minimize both state and federal impact.
• Align your deductions and charitable contributions effectively.

The federal exemption is scheduled to drop by roughly half after December 31, 2025, when portions of the 2017 Tax Cuts and Jobs Act expire.

That means many estates that are currently exempt could become taxable starting in 2026 unless new legislation extends the higher limit.

Taking Action: Your Next Steps

Estate planning is not just for the wealthy, it’s for anyone who wants to spare their loved ones unnecessary hardship.

Here’s how to start:

• Assess your current net worth. Include property, investments, retirement accounts, and insurance.
• Meet with an experienced New York estate planning attorney. Look for someone familiar with the latest state tax thresholds and probate procedures.
• Review your documents every three to five years. Laws and life circumstances change, your plan should too.
• Communicate your wishes. Talk to your family about your intentions to prevent future disputes.

Conclusion: Protect Your Legacy, Don’t Leave It to Chance

Estate planning is an act of care. It’s how you protect the people you love and ensure that your life’s work continues smoothly after you’re gone.

New York’s estate tax system is complex, but with proactive planning, you can reduce taxes, avoid court delays, and secure your family’s future.

At Anastasio Law Group, we specialize in helping New York families navigate these challenges with clarity and compassion. Book a call with Michael Anastasio today to start protecting your story, your assets, and your peace of mind.